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Today's Credit Market's has changed

Posted by Percy A Lowe on June 21, 2012 at 11:50 AM

Hello Percy,

Today’s credit markets are very different than they were in years past. New regulations and economic factors have had significant impact on the way we measure and price risk.


With this new economy, it’s appropriate to rethink and reconsider how we actually define risk. Specifically, based on a new proposed rule by the FDIC, how higher risk consumer loan exposure will be defined and calculated for FDIC Deposit Insurance Assessment will change.

In changing the definition, the FDIC is seeking to more accurately define and differentiate risk concentrations at lending institutions and guard against how shifting economic factors can influence risk assessments.


One of the key changes is that the traditional three-digit credit score used to set its risk threshold will be replaced with “probability of default,” (PD). Based on the proposed rule, the new definition for a higher risk loan is one that has a 20 percent or higher probability of defaulting in two years.


The new rule has a number of wide ranging implications. It will impact a lender’s FDIC assessment and it will allow lenders to uniformly and easily assess risk regardless of their use of proprietary credit scoring models, or the multiple generic credit scoring models now available in the market.


Obviously this is a major change for the credit industry. I’m delighted to share with you that VantageScore Solutions is hosting a live webinar on June 27, 2012, whereby the FDIC and industry representatives will explain the definitional shift from credit score values to probability of default in this proposed rule.


The webinar, which is dubbed, “The New Subprime Definition: Who is Subprime Now? How Much Subprime is in Your Portfolio?” includes presentations from Tyler Davis and Brenda Bruno who are both Senior Financial Analysts and the lead FDIC representatives for this program, as well as Dana Wiklund, Vice President, Credit Risk Analytics, at TD Bank, and our own Sarah Davies, Senior Vice President and head of Analytics, Product Management and Research. Each worked on an industry task force with the FDIC to provide input for its proposed rulemaking that also included the American Bankers Association, the Risk Management Association and a number of risk management professionals from large lending institutions, the three national credit reporting companies (CRCs), and other industry participants.


Registration opened earlier this month and if you haven’t already registered, you can do so here.

Of course this isn’t the only iron in the fire for VantageScore Solutions. Last week, I presented at the 7th annual “Underbanked Conference” in San Francisco along with a consumer, Quentin Cottrell. You might remember Quentin. He is the small business owner and former loan underwriter who was surprised to find himself without a credit score using traditional methodologies. His story was aired before millions on the nationally syndicated public radio program, “Marketplace Money.”


Quentin graciously volunteered to share his story with the conference attendees. Quite literally, Quentin brings this issue to life and is an example of how someone can become unexpectedly unscoreable. I also gave a presentation that was entitled, “Looking into the Face of the Unscoreable,” which provided a profile for the millions of American’s who find themselves unscoreable using traditional credit score models. An article about my presentation is below and Quentin is also our “Five Questions With” guest this month.


Also in this month’s issue of The Score, we share an important new consumer educational resource that details how to be a better manager of credit and how certain common credit-related actions impact credit scores. And lastly, our “Did You Know” column, which derives from the aforementioned paper, details the amount of time it takes to recover from certain actions that have a negative impact on credit scores. The information provides a level of hope and confidence for consumers who have recently missed payments or have other problems managing their debts.



Barrett Burns VantageScore

Categories: Credit Education and Restoration

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